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Here’s Your Plan to Retire in Ten Years

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The average American has only a little over $200,000 saved for retirement by age 65. It’s a small wonder that 50% of married couples and 70% of individuals receive 50% or more of their retirement income from Social Security.

But that doesn’t have to be you. In fact, you don’t even need to wait until you’re 65 to retire. It’s possible you can retire in 10 years – as in 10 years from where you are right now. It doesn’t matter if you’re 25, 35, or 45, with the right mix of discipline, commitment, and financial strategies, it’s a goal you can reach.

Many thousands of others have already done it, which means you can too. And you can do it even if you have no money saved for retirement right now.

Here’s how…

But first, let’s touch on a few important concepts.

Determine “Your Numbers”

What are your numbers? The amount of income you’ll need each year to live in retirement, and the amount of money you’ll need in your portfolio to produce that income.

Let’s say you decide you’ll need $40,000 per year to live in retirement. It’s possible to determine the amount you’ll need to have saved to provide that income.

It’s known loosely as the safe withdrawal rate. It’s a theory mostly, but one that’s been shown to be reliable in a number of studies.

It holds that if you withdraw it no more than 4% from your investment portfolio each year, you’ll have an income for life, and your portfolio will remain intact.

It works something like this: if you earn an average of 7% on your portfolio in retirement, and withdraw 4% for living expenses, that will leave 3% in the portfolio to cover inflation.

If we look at the rate of inflation going back to 1990, it ranged between 1.1% to 5.3% per year, with an average of something less than 3%. Over the past 20 years the average has been closer to 2%. But since early retirement will bring long-term planning consequences, let’s go with 3% as an average.

Can You Earn an Average of 7% Annually for the Rest of Your Life?

Investing is all about playing the long-term averages, and that’s what works in your favor.

Here’s how:

The average return in stocks has been about 10% per year going all the way back to 1928. It varies quite a bit from one year to the next, but that’s the return you can expect over 20 or 30 years.

Meanwhile, safe investments, like high-yield online savings accounts, are currently paying between 1% and 2% per year. But to be conservative, let’s go with 1.5% for our calculations.

If you create an investment portfolio comprising 65% stocks and 35% in high-yield online savings, you can achieve a 7% average annual return.

Here’s how it breaks down:

65% invested in stocks at 10% per year will generate a 6.5 % return.
35% invested in high yield online savings at 1.5% per year will generate a 0.525 return.

The combination of the two will produce an average annual return of 7.025%. That will allow you to withdraw 4% each year for living expenses and retain the remaining roughly 3% in your portfolio to cover inflation.

Why have only 65% in stocks when a higher allocation will get you a bigger return?

If you’re planning to rely on your investments for the rest of your life, you’ll need to build some safety into your portfolio. A 35% allocation in safe assets means that even if the stock market takes a big hit, your portfolio won’t go down with it.

Another important point on this front is that though interest rates are low by historical standards right now, that situation could change. If interest rates were to return to 5%, the savings allocation would make a much bigger contribution to your annual returns, and do it risk-free.

Back to “Your Numbers”

Now that you can see how the 4% safe withdrawal rate works mechanically, it’s time to determine your portfolio number.

If you need $40,000 in income, you can determine your portfolio size by multiplying that number by 25. Why 25? If you really like math, you can divide $40,000 by 4%, and you’ll get $1 million.

But for those of us who don’t like mathematical formulas and number-crunching, it’s easier to simply multiply your income number by 25 to get your portfolio size.

If you multiply $40,000 by 25, you’ll get $1 million. It’s just a simpler calculation, and it’ll get you to the portfolio amount you need quickly.

Commit to Your Numbers

I’ve used $40,000 as an income number for retirement, but it’ll be different for everyone. For example, if you have other income sources you expect to continue in retirement you may need less. But if you want a little bit more fun and luxury in your life, you’ll probably need more.

I’ve only used this number as an example. You can come up with an income number that will work for you. As you can see from my calculations above, your portfolio number will be determined by your income number.

You’ll need to know both.

For example, if you think you’ll need $50,000, you’ll need to build a portfolio of $1.25 million ($50,000 X 25). If you’ll need $100,000 in income, your portfolio will need to reach $2.5 million ($100,000 X 25).

To reach your goal, you’ll need to work toward three objectives:

  1. Saving the money needed to build your portfolio.
  2. Earning a return on your investments that will not only help you build your portfolio, but also keep it growing once you retire.
  3. Implement spending reductions and controls that will enable you to live on what will probably be less money than you are right now.

If you plan to retire in 10 years, you’ll need to commit to all three. Your retirement income and portfolio numbers must serve as a guiding light from now on. As you can easily imagine, retiring in 10 years is a tall order. You won’t get there by taking shortcuts. You’ll need to achieve all three objectives to reach your goal. That’ll take a 100% commitment but it’s the only way to make it happen.

Now let’s look at creating a timetable.

Year 1: Set the Plan to Start Saving

The average person probably saves between 10% and 15% of their pay toward retirement. But if you hope to retire in 10 years, you’ll need to save a lot more. Like 30%, 40%, 50%, or even more.

That’s going to take more than a little bit of sacrifice, and it may not happen right away. That’s why you may need to commit the better part of the first year to getting this phase in full working order.

The best way to start is by implementing a budget immediately. If you’ve never done that in the past, you may need to get help. You can do that by selecting a budgeting application that will show you how.

Your budget should include a generous allocation toward savings. It’s possible that at the beginning of the year you’ll only be able to commit to 15% or 20%. Don’t be discouraged – that’s an excellent start if you’ve never been a saver in the past.

But as you move forward, you’ll need to increase the percentage. For example, you might start by saving 20% of your income. But you can double that percentage by increasing it by 2% each month for 10 months. That will get you to 40%, which may work for you.

If it won’t, commit to continued, gradual increases in savings, even if you have to move them into Year 2.

You should know that anyone who’s committed to a high savings level has found that it gets easier over time. That’s why it’s so important to start in the first year.

Year 2: Focus on Increasing Your Income

There are two ways you can do this: increase your job income or create additional sources of income.

Let’s look at the benefit of each.

  1. Increase your job income. Early retirement shouldn’t mean abandoning your career plans. By continuing to move forward on your job, higher income should follow. That will provide the extra funds to save even more money. But there’s a second purpose for building up your career. If for any reason you may need to rely on a source of earned income when you retire, returning to your current career can be the easiest and most profitable way to make it happen. Most likely, you’ll be able to work in some reduced capacity, like part-time, remote work, contract, or freelancing within your industry, or even with your current employer. Continuing to increase your income on your job will also help if you find it will take longer than 10 years to reach your retirement goal.
  2. Create additional sources of income. What I’m talking about here is creating a side hustle to go along with your full time job. Not only will this generate an additional income while you’re preparing for retirement, but it can also provide a valuable postretirement income source. That would keep you from needing to go back to your current career to earn additional income. One of the best ways to create a side hustle is by making money online. It will not only enable you to make money no matter where you choose to live after retirement, but it holds the potential to make a lot of money. I’ve managed to create seven different income sources using this method. You can do something similar. Begin building a side hustle in Year 2, and you’ll have plenty of extra income when retirement arrives.

Year 3: Focus on Increasing ROI on your Savings

By Year 3 you should be committing to learning all you can about investing. The more you know, the higher your investment returns will be. It will not only enable you to build your retirement portfolio faster, but it can also provide higher returns when you finally retire.

There are ways you can increase your returns, largely by moving into different investment platforms.

For example, if you want to dramatically increase your fixed-income earnings, investing at least some of your bond portfolio in Lending Club can increase your interest income dramatically. Many investors are reporting returns of 7% to 10% per year.

You may also want to allocate part of your stock portfolio toward some type of real estate investing. That will not only provide high returns, but it will also diversify your portfolio in years when stocks are not performing well. Real estate crowdfunding platforms, like Fundrise can provide returns similar to stocks, and sometimes higher. Check out the many different ways you can invest in real estate to improve your return on investment.

If you’re not having much luck with investing, or you don’t have a serious commitment to it, look into investing through a robo-advisor. Those are automated, online investment platforms that provide full portfolio management for a very low fee. That includes building your portfolio, rebalancing it as necessary, reinvesting dividends, and even minimizing your investment-related taxes.

A robo-advisor like Betterment can manage your portfolio for 0.25% per year. That’s $250 for a $100,000 portfolio, or $2,500 for a $1 million portfolio. But if you’d like investing with a more personal touch, you may want to consider Personal Capital. They charge a higher fee, at 0.89%, but also provide financial planning advice, as well as regular access to live investment advisors.

Year 4: Focus on Reducing Your Spending

Cutting your spending is a strategy that needs to be implemented in Year 1. But those reductions will need to become progressive as each year goes by. And it’ll be even more important as your income grows, since there’s always a temptation to spend more as you earn more. That process even has a name – lifestyle inflation. You’ll need to avoid it.

The purpose of reducing spending is twofold:

  1. to free up more money for savings
  2. to lower your cost of living in anticipation of retirement.

Both are equally important. But the second part may be even more so. That’s because early retirement almost certainly requires you to change lifelong spending patterns.

For example, if you’ve been used to living in a large home, driving a late model car, and taking expensive vacations, it may take you several years to unwind those patterns. Put another way, you’ll need to find less expensive ways to create an enjoyable life. And you’ll need to have that well underway before you finally retire. Unfortunately, retirement and an opulent lifestyle are incompatible.

Focus on ways you can reduce your spending. You’ve probably already guessed that involves a lot more than clipping coupons and cutting your cable TV subscription. And in fact, it may require either cutting some very large expenses – like your housing and transportation – or reducing or eliminating dozens of smaller expenses.

There will be tough choices to be made. After all, cutting spending is something like going on a money diet. You’ll do well to think about your ultimate objective – early retirement – to help you embrace the short-term sacrifice.

Ultimately, retirement is about lowering your living expenses to a point where you can live comfortably without working. You may need to remind yourself of that on a regular basis.

Year 5 – 10: Assess and Plan Your Path to Retirement

At this point, you’re moving into the second half of your decade-long early retirement preparation. Generally speaking, you’ll want to concentrate mainly on staying the course. But at the same time, you’ll want to look for ways to increase savings, income and return on investment, and reduce spending.

You may not need to do anything dramatic in those areas at this point. But you should be alert to any ideas or strategies that can improve your performance in each. Small improvements in multiple strategies can dramatically speed your progress. That should be your goal at this point.

But perhaps most important will be guarding against complacency. By now, your overall financial situation will have already improved substantially. This is not the time to take a break. Keep pressing forward until you reach the point where you can finally retire.

Final Thoughts

Why am I stressing the importance of commitment to your early retirement goal? It’s easier than you think to get distracted, especially when you’re making a major change in your life. But while early retirement is certainly possible, it’s not easy. You’ll need to maintain laser beam focus to reach the goal in 10 years.

It will help you to realize the many options that will be open to you once your early retirement goal. Free from needing to make a living, you’ll have the choice to spend your time enjoying your life more, or pursuing opportunities that may even have the potential to make you wealthy.

It’s the kind of thing that happens once financial stress is gone from your life. But before you reach that point, you’ll need to be fully committed to getting there. 

The post Here’s Your Plan to Retire in Ten Years appeared first on Good Financial Cents®.



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YOUR GUIDE FOR SAVING MONEY ON PET FOOD

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If you are like most people, your dog is not simply a pet. He or she is a member of your family.

You want to provide them the best of everything.  From toys to treats, you love to spoil them rotten

But the costs. Oh, how they can quickly get out of control!

WHY CHEAP IS NOT BETTER

Your first thought may be to buy the cheap dog food.

Please, don’t.

The problem is that the lower quality food can lead to health problems for your pet, which could end up costing you more. It is not the answer.

Instead, focus on ways you can save while still getting your favorite canine the food and treats that are best for them.

STOCK UP WHEN ON SALE

When you find a great deal on the dog food you need, buy extra! There is no reason to pick up one bag when you can get a couple and save.

BUY IN BULK

Oftentimes, the larger bags result in greater savings. Compare the price per ounce of the smaller items to the bigger bags to find the lowest cost.

TRY THE STORE BRAND

Just as with the store brands you buy, sometimes the store brand of pet foods is the same – simply in different packaging.

Carefully review the ingredients before making the switch. After all, if they are the same, why are you paying for the label?

SIGN UP FOR THE STORE REWARDS PROGRAM

Loyalty has its perks. Many stores offer loyalty programs to members. You can get exclusive offers, discounts and coupons that are only offered to those who have signed up.

Some programs also reward for your purchase in the form of points. Once you accumulate the points you can cash them in towards savings or freebies.

GET ON THE LIST

Even if you are a member of their program, make sure you are also on the list!  You will get alerts for sales and may even find some awesome coupons to make their way into your inbox as well.

Tip:  Make a secondary email address to use so your inbox is not cluttered with these types of emails.

USE ONLINE SERVICES

There are online pet product providers, such as Chewy, who sell pet food and other items, often at a discount. The added perk here is that they deliver it directly to you – so no lugging home huge bags of dog food from the store.

You can use apps such as Honey or Wikibuy to compare online prices to ensure you also find the lowest possible price for the items you need.

SET UP AUTOMATED DELIVERIES

Some sites, such as Amazon, offer discounts if you sign up for automated delivery of select products. Not only will it be delivered, but you also won’t have to worry about running out.

CHECK FOR REBATE OFFERS

Sometimes, manufacturers offer product rebates. If you can find these, you’ll get money back on your purchase.

PRAISE (OR COMPLAIN)

If you have a food your pet loves, send an email letting them know. They may send you coupons or vouchers for products as a thank you.

Alternatively, if you have a problem with a product, make sure to reach out. The company may offer a refund or alternative product for your trouble.

SHOP THE WAREHOUSE

Skip the big box stores and head to your local warehouse. You may find larger bags at a lower cost sold there – saving you time and money.

BECOME A TRACKER

All stores run sales in cycles. They do this on food, clothes, and more – including pet food!  Keep track of the offers at your favorite stores.

You will start to learn their cycle and can then stock up when items are on sale.

SKIP THE STORE AND MAKE HOMEMADE DOG FOOD

You can even bypass the store and make your own dog food right at home. There are countless recipes on Pinterest that you can try.

But, before you rush to start a cooking frenzy, make sure to carefully research each ingredient to make sure it is safe for your pet to consume.

PUT COUPONS TO WORK

Before you head to the store, head online, and search for coupons for your pet’s food. You may find them on the manufacturer’s website or on coupon printing sites.

Make sure to also check the product packaging as you may find them stuck to the front of that big bag of dog food.

GET FREE SAMPLES FROM YOUR VET

Vets get free samples of the products they sell – so ask for one! The freebies do not cost them anything, so they should be more than happy to give you one if you inquire.

 

 

The post YOUR GUIDE FOR SAVING MONEY ON PET FOOD appeared first on Penny Pinchin' Mom.



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A Peek Into the Last Few Weeks (and our family vacation!)

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How to get a shower and get ready for the day when you’re taking care of two babies! 🙂

People ask me all the time how I’m doing with having two babies and I think this early morning picture says it all. Life is full, my hands are full, and my heart is so full! (By the way, I’m actually putting this post together while trying to bounce Kierstyn to sleep in the Baby K’tan… it’s rare that I don’t have at least one baby in my arms these days!)

How could my heart not be full when this is an almost daily site at our house!

Silas had another weekend baseball tournament at a town about an hour away (Murfreesboro). We had fans set up with a generator, tents, lots of cold drinks in coolers, and these cold wraps to keep everyone cooled down

Champ has been learning how to hold his head up and roll over!

The babies have started to love having books read to them. Goodnight Moon was Silas’ favorite book when he was little, so it’s been so fun to introduce the babies to this book!

We packed for our family trip in tubs — each person got a tub for the week. This saved so much space in our vehicle and made things much more organized!

Our one out of state trip this summer was to go meet up with my family at Bull Shoals Lake in Arkansas. We weren’t sure if the trip was going to happen due to COVID-19, but because of a number of safety measures we put into place, DCS gave us special permission to be able to go and take Champ with us.

Every afternoon during our annual extended family lake vacation, my mom has “Grandma Time” with her grandkids. She teaches them a Bible lesson, they do a craft, have a snack, and do a game together.

Over the past two years, the older grand kids have started helping out. This year, each of the older ones signed up to help out with a craft and/or a snack and then Kathrynne is in charge of games (complete with an elaborate ticketing system and prizes they can turn their tickets in for at the end of the week ala Chuckie Cheese style!)

As many of you know, my mom had some serious health issues last year, including multiple extensive surgeries and skin grafts for skin cancer. She also got really sick with pneumonia in the middle of all that.

She almost didn’t get to come on the annual lake vacation last year. She did come, but she was so weak and sickly that I wondered if she’d make it another year.

This year, at 66 years old, she’s stronger than ever — not only leading Grandma Time, but also skiing and helping with the babies and cooking and looking for ways to reach out and serve all day long.

I know many of you prayed for her last year and I just wanted to tell you thank you, again! I look at this photo I snapped earlier this week and it just reminds me to be grateful for the many gifts it represents.

Her first time in a pool!

They had this sign at the pool! 😉

For details on how we all pitch in on meals and clean up, check out this post.

One of my favorite parts of our extended family vacations: the daily salad bars we have.

On our way home, we stopped by Ozark, MO so the girls and I could go in to the discount store there. (More details on what we bought coming this weekend!)

Jesse’s parents and his sister, Lisa, drove from Kansas to meet up with us so they could meet the babies, too.

I’m so grateful we got to spend time with extended family. This year certainly has made us so much more grateful for this!

A year ago, we were in the middle of our foster care home study and praying for who God would bring into our home for us to love on.

We were at peace about pursuing this path, but we were still apprehensive and wondering what it might mean for our future. There were so many unknowns, so many what if’s, and so many things outside our control.

I look back on this last year and the 5 children we’ve had the privilege to have in our home — 4 for just a very short-term stint and sweet little Champ who has been with us for almost 4 months.

There are still just as many unknowns, what if’s, and things outside our comfort zone. My heart has been broken in a hundred little pieces over the things we’ve seen and witnessed firsthand and the many kids and their stories whom we weren’t able to say yes to. I’ve cried more tears in the last 10 months than I’ve cried in the last 10 years (okay, pregnancy and postpartum probably played a part in that!).

And yet, my heart is fuller and happier than I can ever remember. The opportunity to love, pour into, and nurture has filled me up in the deepest of places. Seeing my husband and kids sacrifice and serve and love so well has been one of the most amazing experiences.

I don’t know what the future holds. I can imagine it will be full of heartbreak and beauty, tears and love, a roller coaster of emotions, and many things I can’t even imagine.

There are many unknowns, but this one thing I know: I don’t regret for one second saying “yes” to foster care. I look at these pictures and think, “We could have missed this.”



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Are Penny Stocks Worth It? 7 Tips to Help You Reduce the Risk

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As share prices for giants like Netflix and Amazon surge, it’s easy to feel priced out of the stock market. As of Aug. 3, a single share of Netflix would cost you $502.19; for Amazon, you’d pay $3,134.82 per share.

If you’re a beginning investor, the high prices may tempt you to seek out a bargain. Enter penny stocks.

Penny stocks seem like an opportunity to buy into an up-and-coming company for dirt cheap. You can buy hundreds or even thousands of shares for the price of an S&P 500 company share.

But watch out: Investing in penny stocks could easily leave you broke.

What Is a Penny Stock? Are Penny Stocks Worth It?

The U.S. Securities and Exchange Commission defines a penny stock as one that trades for $5 or less per share. Most investors, though, take a narrower definition. Many define it as one that trades for under $1.

But it isn’t just the low trading prices that define penny stocks.

You can find stocks trading for under $5 a share on major stock exchanges, like the Nasdaq or New York Stock Exchange (NYSE). But most investors don’t consider these to be penny stocks.

Penny stocks generally trade on the over-the-counter (OTC) market. The transaction takes place between the broker-dealers for the buyer and seller. They use the OTC market to name their prices. There’s no central exchange facilitating the trade, which can happen without anyone else knowing the transaction price.

The transaction may feel the same as it does when you invest in stocks listed on a major exchange. You can typically use whatever brokerage account you normally use to trade stocks. You place the order in the same way you would for any other stock.

The only thing that may stand out: Your broker is required by the SEC to obtain your signature on a risk disclosure document before placing your first penny stock order.

Why Are Penny Stocks So Risky?

If you’re wondering, “Are penny stocks worth it?”, the answer is pretty much a resounding, “NO!” Here’s why penny stock is among the riskiest investments you can make.

They Lack Transparency

Big companies that trade on major stock exchanges are required to file lots of information with the SEC. The information is publicly available at SEC.gov.

But a company with less than $10 million in assets or 2,000 individual investors may not have to file with the SEC at all. Plus, investment analysts and news reporters scrutinize bigger publicly traded corporations. A company with under $10 million in assets is unlikely to draw any of this scrutiny.

Companies traded on over-the-counter exchanges are subject to far less oversight than companies on a big stock exchange. Most penny stocks trade on the pink sheets, an electronic stock listing service that gets its name because it used to be published on — you guessed it — pink sheets. Companies listed on the pink sheets aren’t required to disclose any information.

There’s Usually No Minimum Listing Requirements

Any stock that trades on a major exchange is subject to strict requirements.

For example, for a stock to start trading on the NYSE, these are just a few of the requirements:

  • At least 400 shareholders who each own at least 100 of the company’s shares.
  • A minimum of 1.1 million publicly traded shares with a value of at least $40 million.
  • The stock price must be at least $4 per share.

The companies that issue penny stocks usually can’t meet these stringent listing requirements.

Maybe they have no proven track record. Or maybe they do have a track record, but it’s a troubled one. If a stock listed on the NYSE or Nasdaq falls below $1 per share and stays there for an extended period, it will be delisted. Then, you’ll see it on the OTC markets.

“Penny stocks are typically highly speculative investments,” said Matt Frankel, a certified financial planner (CFP) at The Motley Fool’s The Ascent. “Not only are many penny stocks issued by companies that are yet to achieve profitability or even revenue in many cases, but there’s a significant amount of fraud in the penny stock world.”

They’re Highly Volatile

A single piece of good or bad news can make or break your penny stock investment. The companies are so small that their success may be contingent on getting FDA approval for a single drug or obtaining a patent. A relatively small change in demand for the stock can also result in major gains or losses.

“A penny stock that goes from a few cents to a few dollars can represent massive return on

investment, sometimes in the thousands of percents,” said Evan Tarver, senior financial analyst at Fit Small Business. “However, there is a much higher likelihood that a penny stock will drop to nothing, meaning you would lose your entire investment.”

You May Not Be Able to Sell Your Shares

Most penny stocks have a low trading volume. That means they trade infrequently, which is bad news for you when you want to sell.

Let’s say you owned 5,000 shares of a company, but the trading volume is only 1,000 per day. You’d realistically have to wait five days to sell all your shares. Even then, you may have to sell for much lower than your ask price.

In investor speak, this is known as low liquidity: To quickly convert your investment to cash, it’s likely that you’ll have to do so by discounting the price.

Penny Stocks Are Rife With Fraud

The world of penny stocks is filled with fraudsters who prey on inexperienced investors. Two of the most common penny stock scams are the pump and dump and the short and distort.

Pump and dump: Scammers drum up hype about a company to drive up share prices. They may say that a company has found the cure for coronavirus or that it’s found a new gold mine.  Then they offload their inflated shares on unsuspecting investors.

“Penny stock scams use email newsletters, message boards, and bogus press releases to try to create interest in the stock,” Frankel said. “Some even pay analysts to write up legitimate looking ‘research’ reports on the company, and many even cold call unsuspecting investors to tell them about the ‘incredible opportunity.’”

Short and distort: Investors use a complicated maneuver called short selling when they’re betting a stock’s value will drop or become worthless. With the short-and-distort scam, fraudsters short the stock, then spread false negative rumors about the company. When share prices plummet, they profit.

But Couldn’t I Pick the Next Facebook?

Theoretically, yes. But that’s highly unlikely.

Most wildly successful companies were never traded as penny stocks, even though early investors who stuck around reaped huge profits.

“Most successful stocks, such as Microsoft (MSFT), Facebook (FB), and Tesla (TSLA), all first listed their shares on the NYSE or Nasdaq with prices above $10,” Investopedia reports.

FROM THE INVESTMENT FORUM

7 Rules to Follow if You’re Still Determined to Trade Penny Stocks

We hope we’ve convinced you that buying penny stocks isn’t worth the risk. You’re much more likely to profit by investing in an ETF or mutual fund that represents the entire stock market.

But what if you’re determined to do it anyway? Follow these rules to mitigate the risks.

1. Only Invest What You Can Afford to Lose

Would you be OK with losing this money at the poker table? Don’t invest it in penny stocks if the answer is “no.”

“Any money that you are prepared to invest, you should be comfortable losing 100% of that investment,” said Lou Haverty, a chartered financial analyst (CFA) with Financial Analyst Insider. “In other words, only invest money that you can afford to speculate with.”

2. Research Before You Buy

If you can’t obtain information about a company from SEC filings, that’s a sign that you should pick a different stock. Also, make sure you understand the basics of the industry and how the company makes money. A little knowledge will help you see through overhyped claims.

3. Look for Stocks With a Decent Market Capitalization

Be wary of stocks with extremely low market caps. That means the overall value of its shares is very low.

Most penny stocks are either nano-cap companies (market capitalization of $50 million or less) or microcap companies (market capitalization of $50 million to $300 million).

“As a general rule of thumb, I won’t even consider investing in stocks with market capitalizations under $200 million, which eliminates most of the penny stock world,” Frankel said.

4. Pay Attention to Trading Volume

A stock’s trading volume shows how many shares are bought or sold on a given day. Look for penny stocks with a minimum trading volume of 100,000 to 200,000 to improve your chances of having a willing buyer should you need to sell.

5. Use Automatic Stop Loss Triggers

Haverty recommends setting up stop loss triggers if you’re determined to buy penny stocks. If your share prices fall by the amount you specify, your brokerage will automatically put them up for sale.

6. Watch Out for the Hype

Look out for outrageous claims about a stock’s potential. They may pop up in investment newsletters, emails, websites and message boards.

“If an investment opportunity sounds too good to be true, it probably is,” Frankel said. “For example, if you see a penny stock discussed in a newsletter or on a message board claiming something to the effect of ‘make 200% in 1 week,’ you can be pretty sure you’re looking at a pump-and-dump scam.”

7. Put No More Than 10% of Your Portfolio in High-Risk Investments

High-risk investments should never take up more than 10% of your portfolio at the absolute max.

That’s 10% for ALL the risky investments. You don’t get 10% for penny stocks, 10% for bitcoin and 10% to invest in gold.

It’s essential to keep the other 90% in a diversified portfolio that’s invested across the stock and bond markets.

Boring? Yes.

But pretty much any experienced investor will tell you that boring is better in the long run.

Robin Hartill is a certified financial planner and a senior editor at The Penny Hoarder. She writes the Dear Penny personal finance advice column. Send your tricky money questions to DearPenny@thepennyhoarder.com.

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.



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